1
$\begingroup$

On the economics textbook it is written that GDP Income Approach can be calculated as:

[ Compensation of Employees + Operating Surplus + Consumption of Fixed Capital + Tax on Production and Imports - Subsidies ] (sometimes Consumption of Fixed Capital can be included in Operating Surplus - I think it depends on the textbook).

But when we usually learn about income in schools, we learn that people gain income in mainly 5 different forms - wages, rents, interest, and profit plus government income.

I get that Compensation of Employees can be considered as Wages, Operating Surplus as Profit, and Tax on Production and Imports as Government Income.

But what about interest and rent? How do we account for these two in the calculation above ([ ])? Consumption of Fixed Capital is all about "Depreciation" for fixed capital, not necessarily interest for capital goods. And I have no idea where rent (for borrowing land) is included in the above calculation.

So I would appreciate it if someone could explain where "Interest for capital goods (capital income)" and "Rent for borrowing land" is included in the calculation ([ ]).

$\endgroup$
1
$\begingroup$

I'm going to quote data from the Bureau of Economic Analysis (US) but this should apply for many other countries.

If you look at the breakdown of Gross Domestic Income by Type of Income, you'll see that net operating surplus includes among other things net interest and miscellaneous payments, proprietors' income with inventory valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment, and corporate profits with inventory valuation and capital consumption adjustments. If you are a individual homeowner and you rent out your property, profits will be covered under rental income of persons with capital consumption adjustment. If you run a business, profits from interest on capital assets that are lent out will go under net interest and miscellaneous payments.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.